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Deconstructing Solar Photovoltaic Pricing: The Role of Market Structure, Technology and Policy

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Installations of solar photovoltaic (PV) systems have expanded rapidly over the past decade. Along with this growth has been a substantial decline in PV system prices. Yet, there remains considerable heterogeneity in PV system pricing. For example, among residential and small commercial systems installed in the United States in 2013, roughly 20% were sold for less than $3.90/W, while a similar percentage were priced above $5.60/W.    

In the report, a team of researchers from Yale University, University of Wisconsin-Madison, University of Texas-Austin, and Lawrence Berkeley National Laboratory empirically examined heterogeneity in PV prices in the United States. The research explored different plausible sources of price variation, including characteristics of PV systems and household demographics, as well as measures of installer competition, installer experience, demand for PV, and public policy. A rich dataset of nearly 100,000 PV systems over the 2010-2012 timeframe was analyzed, focusing on systems under 10 kW and excluding many third-party owned systems.

The study focuses on systems ranging in size from 1 to 10 kilowatts (kW). Even within this narrow range, differences in system size were the single largest source of price variability, leading to a $1.50/W price differential between the smallest and largest systems. Other differences in system characteristics, such as tracking equipment or batteries, and installations in residential new construction, also had substantial price impacts.
 
A wide variety of other explanatory factors for pricing variability were tested and in many cases found to have sizable impacts. The report notes, however, that even after accounting for these many underlying influences, a great deal of pricing variability remained unexplained—suggesting the potential importance of other unobserved contributors and the opportunity for further inquiry.